GST for Digital Marketing

“At the stroke of midnight when the world is fast asleep, India will awake to a new Tax regime”

G S T: After so many years of the tussle between different governments & opposition parties, the new tax regime has finally been implemented on July 1, 2017. Even if more than 50% of it’s 1.3 billion population are unaware of its benefits & cons, still the historical day was much celebrated by its citizens.

What is GST?

GST (or Goods & Services tax), an indirect tax replacing all previous tax process which was having a cascading effect on taxes levied by the Central & State Governments. Governed by the Goods & Services tax Council & the Finance Ministry of India, the new tax regime has been introduced to change the complete taxation system of India.

Let’s check out the basic process that a product goes through before reaching the final consumer.

impact of gst on digital marketing

The journey of a Product from Raw Material to Final Consumer

In the previous tax regime, taxation had a cascading effect on subsequent stages which at the end acted as a burden for the end consumer.

In Goods & Services Tax, the tax will be levied on each of these stages and the liability on the part of the consumer will be decreased as buyers in multiple stages of the process can avail the input credit from the process.

Input Credit: Availing the benefits you have paid on your inputs while paying tax on your final product.

Ex. If you liable to pay the tax of Rs.500 on your final product & you have paid Rs.300 on your input products already. Then you need not pay that Rs.300 again, only pay Rs.150 as the tax based on the criteria.

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Type of GST or Goods & Services Taxes in India

             impact of gst on digital marketing agency

There are 3 types of the tax system in GST India:

  • SGST (State Goods & Services Tax)
  • CGST (Central Goods & Services Tax)
  • IGST (Integrated Goods & Services Tax)

Tax Rates under GST in India

As of now, the Goods & Services tax Council has rolled out the following tax slabs under GST:

  • 0%
  • 12%
  • 18%
  • 28% (Source Clear Tax)

GST Rate Impact on Digital Marketing Service Industry?

Enough of Goods & Services tax knowledge now let us focus on, HOW GST WOULD AFFECT DIGITAL MARKETING INDUSTRY?

Before proceeding to the impact of GST on the Online Marketing industry, let us see HOW ADVERTISING INDUSTRY as a whole will be affected?

Advertising industry falls under the services industry and consistent with Goods & Services tax Council announced, it’ll now attract 18% tax, 3% quite the previous tax regime of 15%. This 3% increase might discourage some insiders, but if we see in the longer run, this 3% increase won’t have a big impact on the Industry & more specifically in Digital Marketing Industry.

Unlike the previous tax system, the cascading effect will no more be levied on each stage, so the cost of creating an ad will surely decrease. Due to input credit, the cost will come down. This benefit would be now transferred to the marketing budget of companies.

According to leading financial institutions, input credit system will eventually lead to companies spending more on their Advertisement.

In the previous tax system advertising expense was considered as a manufacturing expense, subjected to VAT & sales tax & no input credit was available to advertisers.

Now in the Goods & Services Tax era, expenses incurred under advertising will be available for input credit of 18% on taxes paid on advertisements.

According to analysts, GST would increase the ad spend of companies due to the low cost of creating an ad & as a result the advertising spend would increase by 10% of about INR 5,000 crore for 2017-18.

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Goods & Services Tax impact on Digital Marketing Industry;


As we can see in the above graph, the number of internet subscribers in India is always on the rise & with the telecom internet revolution, it may well cross other developed countries relatively.

Considering this figure & the fact that experts consider, advertising industry will not have any significant impact from GST implementation & increase in service tax, Digital Marketing field will get the major chunk in the advertising arena.

impact of gst on digital marketing sector

The benefit that companies would be getting from the input credit system, most would want to invest it strategically & measure the impact rather than just throwing off the budget.

Considering the most important advantage in Digital Marketing is that the measurability factor & the supply of an outsized number of audiences, most companies will find it suitable to take a position in paid ads within the Digital field.

Also on the cost value factor, if a marketer sees, then Digital Marketing is much more cost-effective than the offline field & companies can also specifically target the relevant audience.

Things like internet penetration rate & initiatives like Digital India would also add more sugar-coating for those within the Digital Marketing field.

But there is a saying:

“All that Glitters is not Gold” & “Rome was not Built in a Day”

gst on digital marketing services

The benefits & the forecasts that experts have made for the advertising industry more specifically for Digital Marketing industry will take time before it starts showing results.

Now, most agencies are confused, how Google will be charging for Adwords (Google AdWords GST India) & Facebook (Facebook Ads GST India), and companies busy making themselves GST ready; only patience will bring the gold for people in the online marketing industry.

Which Digital Marketing channel would benefit the most?

how will gst impact

Speaking from our experience as a Digital Marketing Training Institute since 2014 cum providing services in Digital Marketing, Social Media, PPC Google Ads & SEO would be in much demand in the GST era along with Email Marketing. PPC Google AdWords would have its own demand but many companies would start now investing more in Social Media platforms diverting some percentage from PPC budget.

Social Media Ads GST India

Even though the numbers are not that big compared to the active users on the internet, but average time spent by users & the return on spending along with the cost of ads on Social Media is much better compared to Google Adwords. However, we should wait & watch, how companies respond to this change, how they react to it.

Nothing can be said as, How Google Ads, Facebook & Twitter would change the tax rules post GST but one needs to mandatorily update GST IN number with them. This impact will be nullified because of the increase in ad spends of companies.

Also, companies would like to top on the organic side & invest more in quality manpower in SEO industry. This would lead to higher competition amongst keywords & more demand for SEO experts. Even, if paid ads bring instant results, but

“One can’t simply under estimate the power of SEO”

At the end, who doesn’t want audience without investment big!

Email marketing another major channel is here to stay even, if most people are hesitant to use it for their companies. But SEO experts & Influencer in Digital Marketing “Neil Patel” strongly suggests that if it is used in the right manner then it can drive 30-40% more traffic than usual.

Who is the Winner?

The winner can’t be decided at the moment because the race has just started & it will take some time to reach the finish line.

But based on trends, Social Media & SEO will lead the race but you never know PPC & Email may show some sportsman spirit & catch up.

Experts considering social media, the next search engine as more & more people are doing their searches in social media compared to search engines, considering this social media would end up as the winner when compared with SEO.

Which Industry would invest the most in Digital Marketing?

*All Estimation & Forecasts based on experts & analyst views;

  • Service sector ad spends would go up by 0.5% because of the input credit from Swachh Bharat cess & Manufacturing to go up by 1% because of Swachh Bharat cess & Krishi Kalyan cess input credit.
  • FMCG ad spends would go up and most FMCG companies would like to create more interactive ads in online medium as the cost of creating an ad will go down.
  • One of the major spenders on ads, Automobile industry would surely be increasing the budget & most likely invest more in Social Media in the form of Video Ads.
  • E-commerce companies one of the major spenders in Online Marketing field would have an impact, even though they can avail the input credit but loss-making companies would find it difficult to bid on keywords when others would increase their ad spends.
  • Alcohol companies would reduce their budget & Petroleum companies would also not increase as they have been kept out of GST as of now.

Till date, the forecasts show for the above-mentioned industry & with time, it will be clear how other industries & the listed above actually perform.

Important things to note for Digital Marketing Agencies/Companies

  • Find a way, how you can adjust that 3% increase in the service tax.
  • Have an in-house creative team and save on this front.
  • Update your GSTIN number A.S.A.P.
  • Focus more on creatives & ensure, how you can deliver the maximum reach with limited creatives.
  • Target specifically for your clients even though most companies budget would increase but they would not want to spend it in a wild manner.

gst impact

As of now, all the forecasts made by the experts are bound to change with time, till then have patience & stay updated.

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